Colchester Papers

Increasing concerns about the deterioration in a number – but not all – developed world government balance sheets, together with increasing concerns about so called “fiscal dominance” over monetary policy has encouraged investors to reconsider the composition of their fixed income portfolios and look at emerging markets (EM) in a new light. We at Colchester have argued for some time that relative balance sheet strength, sustained adherence to policy orthodoxy, the shift to predominately domestic funding and the potential return on offer in a number of emerging markets has increasingly made them attractive relative to their developed world counterparts and other sectors of the fixed income market.
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Please read our paper to discover Colchester’s approach to investing in Global Inflation-Linked Bonds and how an allocation can potentially improve the overall risk reward characteristics of your portfolio.
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Compelling prospective real yields, prudent monetary policy, improved macroeconomic stability across much of the EM local currency debt space, and real currency undervaluation provide a positive backdrop for the asset class going forward. The Australian dollar exhibits comparable volatility to a diversified basket of emerging market currencies versus the US dollar, and historical data suggests that EM currencies have performed relatively well in times of market stress when compared to the Australian dollar. This means that an Australian dollar-based investor has the benefit of the same attractive real yield valuations and nominal income distribution as a US dollar or Euro based investor, but with relatively less drawdown risk and volatility.
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Responsible Investing is, and has been since the inception of Colchester, a fundamental part of our investment process. Environmental, Social and Governance (ESG) factors are incorporated along with macro-economic and financial analysis within our investment valuation framework. Please find attached for your interest our ‘Sovereign Engagement Framework’ which explains how we integrate engagement holistically into our investment process. We believe that enhanced and clear policies can improve a country’s business environment, which in turn reduces country investment risk, funding costs, supports economic growth and should ensure more sustainable debt paths.
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This report has been written with the contribution of the PRI’s Sovereign Debt Advisory Committee (SDAC) of which Claudia Gollmeier, Colchester’s Senior Investment Officer, is the Chair. It aims to provide insights on how sovereign engagement is conducted and where the industry can extend this custom to advance responsible investing.
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The global pandemic of 2020 has exacerbated many of the trends that have been evident over recent years, and historic lows in developed market government bond yields have caused concern that the asset class may offer little or no value. This paper discusses our belief in the continued defensive nature of the asset class and its capacity to cushion a downturn in equity markets.
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Colchester have provided an analysis of the local currency emerging sovereign bond markets in light of recent events and beyond.
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With speculation that the RBNZ might lower the Overnight Cash Rate into negative territory, Colchester offers some comment on why it could go negative and what it might mean.
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“The rising popularity and issuance activity of green bonds is leading to significant growth in green bond funds – both in terms of the number of funds and the assets under management. A total of four new Green Bond funds have been launched this year. These are products of the asset managers Franklin Templeton, Colchester Global Investors, Degroof Petercam and Lyxor. Here, Scope Analysis discusses the current Green Bond Fund market and outlook.”
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Claudia Gollmeier, Head of Investment Management, Asia Pacific, Middle East & Africa (APAC & MEA) Managing Director – Singapore and as Chair of the PRI Sovereign Working Group, has contributed to this paper and it's case studies; specifically the foreword on page 7, plus pages 22, 29 and 49.
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Navigating the prevalent negative bond yielding environment is leaving investors perplexed. This article addresses the misconception that positive returns cannot be delivered from government bonds with negative nominal yields and looks at the opportunities available across global sovereign markets.
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Colchester provide an introduction to the emerging market local currency debt asset class, discuss the merits of this investment choice and how Colchester manage their client's portfolios in this space.

This is an opportune moment to take a step back and reassess valuations and financial stability in the local currency emerging market debt universe.

Colchester’s case study on sovereign credit risk written by Claudia Gollmeier (pg 78-81) and published by the PRI as part of their paper ‘Shifting Perceptions: ESG, Credit Risk and Ratings. Part 3. From Disconnects to Action Areas.’

Colchester’s contribution written by Claudia Gollmeier (pg 132-140) for the CFA Institute’s ‘Guidance and Case Studies for ESG Integration: Equities and Fixed Income’.

Colchester’s investment team analyse debt levels in emerging markets in light of recent rises in global interest rates; and assess how vulnerable they really are in the event of further or more rapid rates rises.

Responsible investing is, and has been since the inception of the company in 1999, integral to the investment process employed by Colchester. Colchester which has the primary...

The prospective real-yield approach, based on purchasing power parity concept, appears to have real-world application, with a minimal need for forecasting. Only inflation can be forecast. Both perfect foresight and lagged...